UNITED STATES OFAMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION

Public Citizen, Inc.
v.
PJM Interconnection LLC

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EL18-61

Joint Comments and Intervention by Sierra Club and the Union of Concerned Scientists
The above-listed public interest organizations respectfully submit a motion to intervene
and their joint comments on Public Citizen’s Federal Power Act Section 206 Complaint in
Docket EL18-61. Longstanding Federal Energy Regulatory Commission (“FERC” or the
“Commission”) precedent recognizes that Regional Transmission Organization/Independent
System Operator (“RTO/ISO”) independence is the backbone of competitive wholesale markets.
Transparency is a key mechanism to safeguard RTO/ISO independence. FERC has required
RTO/ISOs to regularly report on external affairs activities in order to provide stakeholders the
opportunity to seek further information about activities that lie on the hazy line between
permissible educational outreach and improper lobbying. Such disclosure obligations ensure just
and reasonable rates; enhance transparency; and are a critical prophylactic against the possibility
of activities that would undermine independence and perceptions of independence. The
Commission should affirm its prior precedent and clarify that failure to provide such disclosures
risks unjust and unreasonable rates. The Commission should also find that membership fees and
similar expenses paid by the RTO/ISOs to organizations whose primary purpose is to elect public
officials constitute unrecoverable lobbying expenses, even though such expenses may
secondarily enable permissible educational outreach. The express political nature of these
organizations poses too direct a threat to the independence of RTO/ISOs, while alternative, less

 suspect avenues exist to educate public officials on RTO/ISO interests. Given the lack of bright
lines in prior FERC rulings on the matter, RTO/ISOs will benefit from a clear rule on the
unrecoverability of such expenses going forward. Finally, the Commission should require
further explanation of PJM Interconnection, LLC (“PJM”) expenses falling within subaccount
426.4, activities which appear to be ongoing but have not been reported in recent filings.
I.

Background
A.

Motion to Intervene and Statement of Interest

Sierra Club and the Union of Concerned Scientists (“UCS”) move to intervene in the
above-captioned proceeding. These organizations’ members would be directly affected by a
decision that changes the transparency surrounding PJM’s engagement with public officials and
that may affect recovery of expenses related to those activities. Sierra Club and UCS have
significant and unique interests, as described further below, that will be directly affected by the
outcome of this proceeding and that cannot be protected by any other party. The participation in
this docket is clearly in the public interest. Therefore, Sierra Club and UCS respectfully request
that the Commission grant their motion to intervene and status as a full party to this proceeding.
Sierra Club
Founded in 1892, the Sierra Club is a national organization with more than 60 chapters
and over 2.7 million members and supporters. The Sierra Club’s purpose is to explore, enjoy,
and protect the wild places of the earth; to practice and promote the responsible use of the earth’s
ecosystems and resources; and to educate and enlist humanity to protect and restore the quality
of the natural and human environments. An important part of the Sierra Club’s current work at
both the national and chapter level focuses on environmental and public health problems
associated with energy generation. To promote affordable and clean energy, Sierra Club

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 frequently advocates for market designs and rules that facilitate fair participation by renewable
energy resources, demand-side management, and storage. The Sierra Club has been a regular
participant in PJM’s Public Interest and Environmental Organizations User Group. This
proceeding raises issues which are important to the environmental, public health, and
affordability interests that Sierra Club seeks to advance.
Union of Concerned Scientists
Union of Concerned Scientists is a national nonprofit organization dedicated to
advancing responsible public policies in areas where science and technologies play a critical role.
Established in 1969, UCS has created a unique alliance between many of the nation’s leading
scientists and thousands of committed citizens. The UCS Climate & Energy Program focuses on
developing a sustainable energy system—one that is affordable and non-depletable, and that does
not degrade natural systems or public health. UCS is headquartered in Cambridge,
Massachusetts, and also has offices in Oakland, Chicago, and Washington, D.C. UCS has been a
regular participant in PJM’s Public Interest and Environmental Organizations User Group. This
proceeding affects both long-term consumer costs and the role of state-enacted public policies
that are of central interest to UCS.
B.

Relevant Commission Precedent

Commission precedent regarding RTO/ISO independence and responsiveness to
stakeholders, and restrictions on recovery of expenses related to lobbying are relevant to this
proceeding.
1. RTO/ISO Independence and Responsiveness to Stakeholders
In Order No. 2000, the Commission determined that independence is an essential
characteristic necessary for RTO/ISOs to prevent any undue discrimination and to bring benefits

3

 to market participants. “The principle of independence is the bedrock upon which the ISO must
be built if stakeholders are to have confidence that it will function in a manner consistent with
this Commission's pro-competitive goals.” 1 Following Order 2000, the Commission recognized
that the increasing size and complexity of RTO/ISOs necessitated the elaboration of further
criteria to ensure independence and responsiveness to stakeholders. 2 For example, RTO/ISO
management and boards faced increasing challenges in “understanding the impact of their
decisions on the various stakeholder classes.” 3 In Order No. 719, the Commission required
RTO/ISOs to adopt reforms as necessary to ensure that their boards are responsive to the needs
of its customers and other stakeholders, and developed responsiveness criteria. 4 The
Commission concluded that RTO/ISO responsiveness to stakeholders “is important to providing
[customers and other stakeholders] with confidence in RTOs’ and ISOs’ independent governance
processes.” 5
2. Recovery of expenses related to lobbying
In the context of defining accounting requirements, the Commission has acknowledged
that defining precisely the category of expenditures made for political purposes is challenging.
However, that difficulty “does not mean, as some have suggested, that we should abandon our
effort at separate classification and reporting of political expenditures.” 6 In Order No. 276, the

1

Atl. City Elec. Co. et al., 77 FERC ¶ 61,148, 61,574 (Nov. 13, 1996).
Wholesale Competition in Regions with Organized Electric Markets, Notice of Proposed
Rulemaking, 73 Fed. Reg. 12,576, FERC Stats. & Regs. ¶ 32,628, at PP 273-274(Feb. 22, 2008)
(“NOPR”).
3
Id. at P 273.
4
The four responsiveness criteria are: (i) inclusiveness; (ii) fairness in balancing diverse
interests; (iii) representation of minority interests to the RTO/ISO boards; and (iv) ongoing
responsiveness. Order 719, FERC Stats. & Regs. ¶ 31,281, at PP 502-510.
5
Id. at 503.
6
Expenditures for Political Purposes - Amendment of Account 426, Other Income Deductions,
Uniform System of Accounts, and Report Forms Prescribed for Electric Utilities and Licensees
2

4

 Commission addressed the scope of a subaccount of expenditures for “[c]ertain [c]ivic,
[p]olitical and [r]elated [a]ctivities.” 7 (Subaccount 426.4). The subaccount separated out, inter
alia, “expenditures for the purpose of influencing public opinion with respect to the election or
appointment of public officials, referenda, legislation, or ordinances.” 8 The Order included an
indicative list of the types of expenses covered in the subaccount including, for example,
“[m]embership fees in organizations engaged in lobbying on legislative matters” and
“[p]ayments for lobbying.” 9 The Commission determined, however, that classification of an
expense as falling within the subaccount did not necessarily mean that the expenditure should be
excluded from the utility’s cost of service in a rate proceeding. 10 Instead, the Commission left
that determination to be made case-by-case.
In utility and gas pipeline rate cases, the Commission sought to distinguish between
expenditures for activities falling within the subaccount that benefit ratepayers, and are therefore
recoverable, (e.g., monitoring, reading and assessing the impact of regulatory and legislative
developments in the natural gas industry11) and those that do not (e.g., lobbying activities 12). A

and Natural Gas Companies - FPC Forms Nos. 1 and 2, Order No. 276, 30 FPC 1539, 1540
(1963), order on reh’g, 31 FPC 411 (1964).
7
Id. at 1540.
8
Id. at 1540.
9
Id. at 1542.
10
Id. at 1541.
11
Williams Natural Gas Company, 73 FERC ¶ 63,015, 65,072-73 (Nov. 22, 1995), order on
initial decision, 77 FERC ¶ 61,277 (Dec. 19, 1996), order on reh’g, 80 FERC ¶ 61,158 (Aug. 1,
1997).
12
Delmarva Power & Light Company, 58 FERC ¶ 61,169, 61,509 (Feb. 18, 1992), order on
reh’g, 58 FERC ¶ 61,282 (Mar. 12, 1992), further order on reh’g, 59 FERC ¶ 61,169 (May 8,
1992).
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 long history of Commission precedent concludes that just and reasonable rates preclude recovery
of the latter category of expenses. 13
The Commission confronted how to apply these principles in the context of an RTO/ISO
following an investigation under Section 206 of the Federal Power Act into the justness and
reasonableness of ISO New England’s (ISO-NE) external affairs and corporate communications
expenses (the “ISO-NE Order”). 14 Canvassing its prior orders addressing the recoverability of
lobbying-type expenses, the Commission concluded that they provided “limited guidance as to
what is and is not, properly recoverable.” 15 The Commission explained that, in general, public
outreach and educational expenses were considered recoverable while lobbying expenses were
not. But the line between the two types of activities had not been clearly delineated. 16
During the course of the investigation, ISO-NE submitted nearly 600 pages of
communications underlying its external affairs expenditures. 17 On the basis of this
documentation, the Commission concluded the expenses were associated with “informational
activities” and therefore recoverable. 18 Specifically, the Commission found that monitoring
hearings and proposed legislation and engaging with state and federal legislators regarding
specific legislation are all essential to ISO-NE’s mission to operate the regional wholesale

13

See, e.g., Northern Border Pipeline Company, 23 FERC ¶ 61,213, 61,439 (May 9, 1983)
(“Expenditures incurred to influence the opinion of the public during the selection process have
little or no benefit to the ratepayers, and therefore must be borne by stockholders.”); Delmarva
Power & Light Company, 58 FERC ¶ 61,169, 61,509 (Feb. 18, 1992), order on reh’g, 58 FERC
¶ 61,282 (Mar. 12, 1992), further order on reh’g, 59 FERC ¶ 61,169 (May 8, 1992) (The portion
of expenses “used for lobbying activities may not, under any circumstances, be included in the
utility's cost of service.”).
14
ISO-New England, Inc., 117 FERC ¶ 61,070 (Oct. 19, 2006) (“ISO-NE Order”).
15
Id. at P 40.
16
Id.
17
Braintree Elec. Light Dep’t v. FERC, 550 F.3d 6, 15-16 (D.C. Cir. 2008).
18
ISO-NE Order at P 49.
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 market. 19 Moreover, ISO-NE had not supported legislation from which it could reap any
financial or other benefit; nor did the expenses include “participation in Political Action
Committees, candidate fundraising, entertainment expenses” or other activities that are clearly
unrecoverable. 20 The expenses were recoverable because they were “directly related to existing
or future operations, were undertaken in the market participants’ interest, and were in furtherance
of legitimate RTO objectives.” 21
However, the Commission acknowledged that parties challenging the expenses had raised
valid concerns about the transparency surrounding the external affairs activities, and the need to
better understand the nature of the expenses. The Commission ordered ISO-NE to post monthly
reports on its “external affairs” and “corporate communications” activities to provide
stakeholders an opportunity to review them, the topics covered, and the parties with whom ISONE representatives met. 22 The Commission also required ISO-NE to provide support to warrant
recovery of any expenses falling within the subaccount in future budget filings. 23
Upon review, the D.C. Circuit found the approach to be a reasonable one and upheld the
ISO-NE Order. 24 While the court found the Commission’s “Pollyannaish” assertion that an
RTO/ISO has no interest beyond achieving its mission of reliable service at the lowest
achievable cost unconvincing, it concluded that the framework to evaluate political expenditures

19

Id.
Id.
21
Id. at P 50.
22
Id. at P 52.
23
Id. The Commission specified that this report “among other things, should identify all
meetings (including those conducted by telephone) held in the past month by or on behalf of
ISO-NE with any public official, including those in the legislative or executive branches of
federal or state government, as well as a description of the attendees and the issues addressed
during the meetings.” Id.
24
Braintree Elec. Light Dep’t v. FERC, 550 F.3d 6 (D.C. Cir. 2008).
20

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 did not rely on such a naive assumption. 25 The court emphasized that the Commission had
assessed voluminous documentation of the actual communications prior to determining the
expenses’ recoverability. The court also upheld the disclosure obligations as a “reasonable
balance of competing interests,” after interpreting the ISO-NE Order to narrow the exemptions to
the reporting requirements. 26 The court underscored that the Commission had imposed the
disclosure obligations as a way to give stakeholders an opportunity to seek further information
about activities of concern, and that the ISO-NE Order imposed on ISO-NE the expectation that,
if requested, it would share copies of the documents prepared for or distributed at the meetings
with public officials. 27
C.

Public Citizen’s Section 206 Complaint

Public Citizen’s complaint identifies $456,500 in campaign contributions made by PJM
to the Democratic Governors Association and the Republican Governors Association. Based on
Public Citizen’s filing, the payments appear to have been made in amounts of approximately
$25,000 to each of the Associations every year since 2007. 28 Public Citizen asserts that PJM
routinely leaves the subaccount 426.4 (“Expenditures for Certain Civic, Political, and Related
Activities”) blank in its Form No. 1 annual report. 29 The five most recent years of PJM Form
No. 1 filings (2012-2016) have reported no subaccount 426.4 expenditures. 30 Public Citizen also

25

Id. at 12 (“Rent-seeking and shirking are surely not confined to for-profit firms.”).
Id. at 15-16.
27
Id.
28
Docket No. EL18-61, Section 206 Complaint of Public Citizen, Inc. at 3 (Feb. 20, 2018)
(“Public Citizen Complaint”). There is some variation with the pattern of contributions from
2007 to 2009.
29
Id. at 5.
30
See PJM Interconnection, LLC’s submittals of FERC Form 1 Annual Report of Major
Electric Utilities, Licensees and Others for the years ending in 2016, 2015, 2014, 2013, and 2012
(submitted Apr. 18, 2017, Apr. 14, 2016, Apr. 20, 2015, Apr. 17, 2014, and Apr. 18, 2013,
respectively).
26

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 identified federal lobbying expenditures by PJM totaling more than $3.6 million in the
Congressional database, as well as lobbyists registered in Virginia, Ohio, and Pennsylvania who
work on PJM’s behalf. 31 Finally, Public Citizen asserts that arrangements made with the law
firm Wright & Talisman, P.C. are suggestive that the firm may be providing lobbying support to
PJM. 32
II.

Comment
A. The Commission should require RTO/ISOs to disclose all outreach and meetings
with public officials.
The Commission has recognized that the category of civic and political activities

subsumed under subaccount 426.4 are “controversial” expenditures. 33 In addressing these
expenditures in ISO-NE, the Commission struck a balance between the RTO/ISO’s need to
engage in informational activities with state or federal officials in order to achieve its mission as
well as the legitimate interests of stakeholders to understand these engagements and ensure that
they do not cross the line into political activity and rent-seeking. Vindicating the stakeholders’
interests, however, depended not on the Commission further defining the set of particular
activities that are impermissible or unrecoverable, but rather on ensuring the transparency
stakeholders need in order understand the nature of the activity and seek further information. 34
Stakeholders concerned about specific activities may expect to receive further documentation of

31

Public Citizen Complaint at 6-7.
Id. at 7.
33
ISO-NE Order at PP 40, 46 (citing Southwestern Electric Power Co. v. Fed. Power Comm’n,
304 F.2d 29 (5th Cir. 1962)).
34
The Commission’s Order requires disclosure of activities that would appear to fall within
subaccount 426.4. In light, perhaps, of the challenges delineating the precise limits of this
category of expenses, the Commission’s Order did not base the disclosure obligations on the
accounting classification of an activity, but rather identified a more clear-cut category of
outreach activities to public officials that must be reported. See ISO-NE Order at P 52.
32

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 the engagement, providing assurance the RTO/ISO is not seeking recovery of expenses that
provide no benefit to customers. The lynchpin of the Commission’s framework to address these
controversial expenditures, and ensure just and reasonable rates, is transparency.
While the Commission did not directly relate its decision in the ISO-NE Order to
RTO/ISO independence and the related criteria on RTO/ISO responsiveness, a framework based
on transparency also supports the principles the Commission has articulated in that context. In
assessing the ISO-NE external affairs expenditures, the Commission wrestled with the fact that
diverse stakeholders and the RTO/ISO will not always agree on the best way to serve the
RTO/ISO mission. The Commission considered that an RTO/ISO may need to express its views
to public officials in the absence of stakeholder unanimity, and even on “highly controversial
subject matters.” 35 Yet RTO/ISO engagement in activities that look like lobbying, potentially in
support of legislation or other proposals that are highly controversial among stakeholders,
without check threatens confidence in the RTO/ISO independence that is the bedrock of
competitive wholesale markets. Such engagement can undercut the perception of RTO/ISO
responsiveness to the needs of customers and other stakeholders, which Order 719 concluded is a
crucial component of independence. Lobbying activities without check implicate rent-seeking
and pursuit of other goals inconsistent with the RTO/ISO’s mission.
Transparency bridges the RTO/ISO’s need to engage in informational activities necessary
to achieve its mission with the critical goal of maintaining the confidence of customers,
members, and other stakeholders in RTO/ISO independence. Reporting obligations provide a
critical check on activities that are otherwise suspect, where backed by the Commission’s
expectation that RTO/ISOs will respond to requests for further clarification.

35

Id. at P 49. See also Braintree Elec. Light Dep’t v. FERC, 550 F.3d 6, 12.
10

 To ensure transparency and confidence in their independence, RTO/ISOs should post
monthly reports on all meetings with public officials in the same manner as ISO-NE. 36 While
they may impose a mild reporting burden on RTO/ISOs, disclosure obligations ultimately work
to the benefit of all stakeholders and the mission of RTO/ISOs. As noted by the D.C. Circuit, the
posting requirement is not meant to force production of “exhaustive lists of information,” but
rather seeks “to provide stakeholders information regarding the nature of activities . . . and,
therefore, the opportunity to seek further information” from the RTO/ISO. 37 Reporting
requirements are critical to ensure just and reasonable rates providing the primary means by
which a stakeholder may identify and ultimately challenge expenses that are not related to a
legitimate RTO/ISO goal and that should not be recoverable. They provide a workable
mechanism for RTO/ISOs to pursue necessary informational activities without undermining
confidence in RTO/ISO independence. Finally, such transparency serves as an important
prophylactic against activities, such as rent-seeking and political lobbying, that are inconsistent
with the mission of RTO/ISOs.

36

The Commission clarified that ISO-NE’s monthly reports need not include a number of
specific types of contact, such as “pre-filing meetings with the Commission,” finding such
“briefings, responses to inquiries and similar activities to be an integral part of ISO-NE’s
regulatory or public informational responsibilities and therefore, should not be fettered by
additional reporting requirements.” ISO New England Inc., 118 FERC ¶ 61,105 at P 39 (Feb. 15,
2007).
37
Braintree Elec. Light Dep’t v. FERC, 550 F.3d 6, 15 (quoting 118 FERC ¶ 61,105 at P 42).
See also ISO New England Inc., 118 FERC ¶ 61,105 at P 42 (“We expect that, if requested, ISONE will provide copies of any documents that it prepared for or distributed at meetings with
public officials.”).
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 B. The Commission should clarify going forward that membership fees in lobbying
organizations are not recoverable, even if connected secondarily to informational
activities.
The Democratic Governors Association and Republican Governors Association are
organizations whose primary objective is to support the election of non-federal candidates.
These organizations are also widely understood to provide a circumspect means by which
businesses and other entities can support specific candidates without publicly disclosing that
support. 38 Even assuming that these two organizations also provide forums for engagement with
governors and gubernatorial candidates, there are other ways for RTO/ISOs to achieve
educational outreach to such individuals without affiliating with lobbying organizations.
Governors and their staff participate in events that are not hosted by lobbying organizations. The
harms of allowing membership fees to such organizations to be recoverable are far greater than
any negligible benefit to an RTO/ISO’s mission.
To the extent that FERC orders and decisions have yet clearly stated that memberships or
other payments to organizations whose overriding purpose is the election of candidates are not

38

See, e.g., Susan Pulliam and Brody Mullins, The Modern Campaign-Finance Loophole:
Governors Associations THE WALL STREET JOURNAL (Dec. 29, 2017),
https://www.wsj.com/articles/the-modern-campaign-finance-loophole-governors-associations1514562975 (“In many states, corporations can’t give large sums directly to campaigns, but they
can funnel funds through groups that support Democratic and Republican gubernatorial
candidates . . . . An internal tracking system . . . allows the DGA to keep track of how much
individual governors raise [] from companies . . . . ”); see also Annie Linskey, Firms with
interests in Md. pour cash into DGA, THE BALTIMORE SUN (Nov. 27, 2011),
http://www.baltimoresun.com/news/maryland/bs-md-dga-fundraising-figures-20111127story.html (“Some companies with interests in Maryland have found a new way to show support
for Gov. Martin O’Malley: They’re contributing tens of thousands of dollars to the Democratic
Governors Association.”).
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 recoverable expenses, 39 a clear rule will help all RTO/ISOs avoid such expenditures going
forward. 40
C. The Commission should require an explanation of PJM’s subaccount 426.4
activities.
Public Citizen alleges that PJM has engaged in activities that appear to fall within the
scope of subaccount 426.4. Subaccount 426.4 covers a broad category of expenses related to
both civic and political engagement with public officials. It includes expenses related to
activities “for the purpose of influencing the decisions of public officials” unless those expenses
are “directly related to appearances before regulatory or other governmental bodies in connection
with the reporting utility’s existing or proposed operations.” Subaccount 426.4 expressly
includes “payments for lobbying or other fees to persons or organizations including law firms,
service companies or other affiliated interests, for influencing the passage or defeat of pending
legislative proposals or influencing official decisions of public officers.” 41 While reporting an
expense as falling within subaccount 426.4 does not mean the expense is illegal, improper, or
unrecoverable, the separate reporting of such expenses is mandatory under FERC’s Uniform
System of Accounts. 42 PJM has not reported any expenses under subaccount 426.4 in the past
five years (2012-2016) of filing of Form No. 1 on record with the Commission.

39

We did not locate a decision explicitly addressing the Democratic Governors Association or
Republican Governors Association.
40
We have no basis to dispute PJM’s assertion that it “does not make contributions to PACs or
candidates’ campaign funds.” Docket No. EL18-61, Answer of PJM Interconnection, L.L.C., at 5
(March 9, 2018). However, we urge the Commission to give prospective guidance further
clarifying that such contributions are not recoverable.
41
ISO-NE Order at P 44 (quoting Order No. 276, 30 FPC 1539 (1963)).
42
See generally 18 C.F.R. Pt. 101; see also Accounting and Fin. Reporting for Pub. Utilities
Including RTOs, Order Denying Rehearing 115 FERC ¶ 61080 (2006).
13

 The Commission should require an explanation of this seeming discrepancy, and provide
an opportunity for the complainant and intervenors in this proceeding to comment in response.
III.

Conclusion
For the foregoing reasons, Sierra Club and UCS respectfully request the Commission

issue an order (1) finding that regular disclosure of RTO/ISO outreach to public officials, as
described in the ISO-NE Order and affirmed by the D.C. Circuit, is necessary to ensure just and
reasonable rates, and specifically requiring PJM to commence such reporting; (2) finding that
membership fees to organizations whose primary purpose is to elect public officials are not
recoverable; and (3) requiring PJM to explain the omission of any subaccount 426.4 expenses in
its most recent FERC Form No. 1 filings, and providing an opportunity for all parties to
comment in response.

Dated: March 12, 2018
Respectfully submitted,
/s/ Kim Smaczniak
Kim Smaczniak
Clean Energy Staff Attorney
Earthjustice
1625 Massachusetts Avenue, N.W.,
Suite 702
Washington, D.C. 20036
T: 202.797.5247 or 202.667.4500 Ext. 5247
F: 202.667.2356
ksmaczniak@earthjustice.org
Attorney for Sierra Club and Union of
Concerned Scientists

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 CERTIFICATE OF SERVICE
Pursuant to Rule 2010 of the Commission’s Rules of Practice and Procedure, 18 C.F.R. §
385.2010, I hereby certify that I have this day served the foregoing document upon each person
designated on the official service list compiled by the Secretary in this proceeding by electronic
means.
Dated at Washington, D.C. this 12th day of March, 2018.

/s/ Kim Smaczniak
Kim Smaczniak
Clean Energy Attorney
Earthjustice
1625 Massachusetts Avenue, N.W.
Suite 702
Washington, D.C. 20036
T: 202.797.5247 or 202.667.4500 Ext. 5247
F: 202.667.2356
ksmaczniak@earthjustice.org

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